India, Vietnam Key Beneficiaries Of Global Supply Chain Shift, Says Nomura

Asian countries, particularly India and Vietnam, will benefit the most from the China Plus One strategy, with ancillary industries and local small and medium enterprises being the major beneficiaries, according to Nomura.

The ongoing shifts in global supply chains are creating new growth opportunities for several Asian economies, Nomura said in a note on May 28. According to the brokerage, Asia remains the biggest beneficiary, with several equity opportunities across countries and sectors, but India is the most exciting.

Majority of the listed stocks that provided opportunities for investors are in India and parts of Southeast Asia, Nomura said. In India, companies like Reliance Industries Ltd., Bharat Electronics Ltd, Exide Industries Ltd., Sona BLW Precision Forgings Ltd., Uno Minda Ltd. will benefit the most, the note said.

Ancillary industries and local SMEs in Asian countries should be major beneficiaries, and quality large-cap domestic banks and financial institutions should be natural long-term indirect beneficiaries, it said.

"Earnings contribution may not be as significant during the early stages of these shifts but will likely grow over time."

India's gains are partly attributed to its large domestic consumer market, which is aided by a large pipeline of projects across the electronics sector. Nomura estimates this should raise India’s exports from $431 billion in 2023 to $835 billion by 2030, a compounded annual growth rate of 10%.

"Investors (in India) need to be patient in the short term, but we expect a larger impact on fundamentals and more opportunities over time."

In a likely reflection of the geopolitical alignment, a majority of the investments in India are from US companies and developed Asia, the note said.

In India, the benefits of the China Plus One strategy will span companies in electronics and semiconductors, autos, solar energy, pharmaceuticals, and defence sectors, Nomura said. "As corporate capex picks up, we believe the Indian corporate sector can sustain 12–17% earnings growth in the medium term."

The government's infrastructure push, along with a revival in the real estate sector, has led to a pick-up in private capex, the brokerage said.

India has directly transitioned to services-driven growth, having missed the low-cost labour-intensive manufacturing opportunity that China and other Asian economies capitalised on. "Much of India’s growth has been driven by high-skilled service sectors and, to some extent, capital-intensive manufacturing."

India has huge potential, and global value chain integration will likely be a significant tailwind, Nomura said.